Overall business performance in 2023 was under pressure, and 24Q1 revenue continued in 23Q4, maintaining high year-on-year growth. In 2023, the company achieved annual revenue of 65.87 billion yuan (-5.41%), achieved net profit attributable to mother of 1,783 billion yuan (-14.54%), and realized net profit of 1,118 billion yuan (-35.87%) after deduction. In Q1 '24, the company achieved revenue of 17.607 billion yuan (+85.32%), net profit to mother of 306 million yuan (+64.39%), net profit after deducting non-return to mother of 240 million yuan (+62.96%), and achieved rapid net profit growth.
Gross margin was under pressure in 2023, and cost control was good. In 2023, the company's gross sales margin reached 10.04%, -1.14pct year-on-year. Meanwhile, the cost rate for the period was 7.72%, a year-on-year decrease of 7.88pct. Among them, sales/management/ R&D expenses rates were 2.21%/1.16%/4.66%, respectively, +0.04pct/+0.11pct/+0.07pct, respectively, and the company's cost control remained good.
The global AI boom is driving the growth of the computing power market and consolidating the company's leading position in the industry. In 2023, big models and generative AI set off a global artificial intelligence boom, driving the burgeoning development of the computing power market. According to the latest data released by Gartner and IDC, the company occupies the second place in the global server market, ranking first in the Chinese server market; the top three in the global storage market, number one in the Chinese storage market; and number one in the Chinese liquid-cooled server market.
The company continues to break through and improve its core competitiveness in various aspects such as hardware, computing power, and algorithms. Through continuous innovation and technological breakthroughs in hardware, computing power, and algorithms, the company has significantly enhanced the competitiveness of its core products: 1) Hardware: The company officially released the Ethernet Switch-X400, the first Ethernet switch built on the NVIDIA Spectrum-X platform in China. The throughput reached 51.2T, the highest throughput in the industry, 4 times higher than the previous generation of products, and 1.6 times higher than traditional RoCE network performance; 2) Software: The company released the enterprise large model development platform “Yuanbrain Enterprise Intelligence” for enterprise AI The implementation application provides an efficient, easy-to-use, and secure end-to-end development platform, providing a series of tools such as data preparation, model training, and knowledge retrieval; 3) Computational power: In 2023, the company released a new-generation G7 computing power platform. The company's latest generation AI training server NF5688G7 is nearly 7 times faster than the previous generation; 4) On the algorithm side: In 2023, the company released the latest “Source 2.0” model, which has excellent performance in programming, reasoning, and logic.
Risk warning: The downstream market is uncertain; there is a risk of bad debts in accounts receivable.
Investment advice: The company's net profit for 2024-2026 is estimated to be 18.27/21.33/2.310 billion yuan, corresponding to current PE 29/25/23 times, respectively. We used the PE relative valuation method and selected comparable companies in the same industry, Zhongke Shuguang and Ziguang Co., Ltd. as comparable companies in the same industry. The average PE of comparable companies in 24 years was 28.3 times that of comparable companies. Considering the development of artificial intelligence, the demand for servers and their components has increased, and the company's business continues to invest in research and development of related products. For the first coverage, we gave the company 30-32 times PE in 2024, with an estimated reasonable share price range of 37.23-40.65 yuan, and given a “superior to the market” rating.